Solution 1:
CM ratio = Contribution margin / Sales = $1,620,000 / $3,240,000 = 50%
Solution 2:
Break even Point in dollar sales = Fixed costs / contribution margin ratio = $160,000 / 50% = $320,000
Solution 3:
If sales increases by $60,000, then increase in net operating income = $60,000 * 50% = $30,000
Solution 4a:
Degree of operating leverage based on last year sales = contribution margin / net operating income
= $1,620,000 / $1,460,000 = 1.11
Solution 4b:
% increase in net operating income = % increase in sales * Degree of operating leverage
= 14% * 1.11 = 15.54%
Solution 5a:
New selling price per unit = $120 * 86% = $103.20
New Fixed costs = $160,000 + $69,000 = $229,000
New sales volume = ($3,240,000/$120)*125% = 33750 units
Computation of net operating income - Feather friend Inc. |
|
Particulars |
Amount |
Sales (33750 * $103.20) |
$3,483,000.00 |
Variable expenses (33750*$60) |
$2,025,000.00 |
Contribution margin |
$1,458,000.00 |
Fixed expenses |
$229,000.00 |
Net operating income |
$1,229,000.00 |
Solution 5b:
If the sales manager's ideas are implemented, net increase (Decrease) in net operating income = $1,229,000 - $1,460,000 = ($231,000)
As net operating income is decreasing as compared with last year, therefore sales manager suggestions should not be implemented.
Solution 6:
If sales commission increased by $1.80 per unit then new contribution margin per unit = $120 - $60 - $1.80 = $58.20 per unit
New sales volume = 27000*125% = 33750 units
Target operating income = $1,460,000
Maximum fixed costs = Total contribution margin - target operating income
= (33750 * $58.20) - $1,460,000 = $504,250
Existing fixed costs = $160,000
The amount by which advertising can be increase is = $504,250 - $160,000 = $344,250
Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $120 per unit. Variable expenses...
Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $120 per unit. Variable expenses are $60.00 per unit, and fixed expenses total $180,000 per year. Its operating results for last year were as follows: Sales Variable expenses Contribution margin Fixed expenses Net operating income $3,240,000 1,620,000 1, 620,000 180,000 $1,440,000 Required: Answer each question independently based on the original data: 1. What is the product's CM ratio? 2. Use the CM ratio to determine the break-even point in...
Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $120 per unit. Variable expenses are $60.00 per unit, and fixed expenses total $180,000 per year. Its operating results for last year were as follows: Sales $ 3,000,000 Variable expenses 1,500,000 Contribution margin 1,500,000 Fixed expenses 180,000 Net operating income $ 1,320,000 Required: Answer each question independently based on the original data: 1. What is the product's CM ratio? 2. Use the CM ratio to determine the break-even point...
Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $40 per unit. Variable expenses are $20.00 per unit, and fixed expenses total $180,000 per year. Its operating results for last year were as follows: Sales Variable expenses Contribution margin Fixed expenses Net operating income $ 1,120,000 560,000 560,000 180,000 $ 380,000 Required: Answer each question independently based on the original data: 1. What is the product's CM ratio? 2. Use the CM ratio to determine the break-even point...
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Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $40 per unit. Variable expenses are $20.00 per unit, and fixed expenses total $180,000 per year. Its operating results for last year were as follows: Sales Variable expenses Contribution margin Fixed expenses Net operating income $ 1,120,000 560,000 560,000 180,000 $ 380,000 Required: Answer each question independently based on the original data: 1. What is the product's CM ratio? 2. Use the CM ratio to determine the break-even point...
Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $40 per unit. Variable expenses are $20.00 per unit, and fixed expenses total $160,000 per year. Its operating results for last year were as follows: Sales Variable expenses Contribution margin Fixed expenses Net operating income $ 1,120,000 560,000 560,000 160,000 $ 400,000 Required: Answer each question independently based on the original data: 1. What is the product's CM ratio? 2. Use the CM ratio to determine the break-even point...
Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $80 per unit. Variable expenses are $40.00 per unit, and fixed expenses total $200,000 per year. Its operating results for last year were as follows: Sales Variable expenses Contribution margin Fixed expenses Net operating income $ 2,080,000 1,040,000 1,040,000 200,000 $ 840,000 Required: Answer each question independently based on the original data: 1. What is the product's CM ratio? 2. Use the CM ratio to determine the break-even point...
Check Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $120 per unit Variable expenses are $60.00 per unit, and fixed expenses total $160,000 per year. Its operating results for last year were as follows: Sales Variable expenses Contribution margin Fixed expenses Net operating income $ 3,240,000 1,620,000 1,620,000 160,000 $ 1,460,000 SK Reg 1 Reg 2 Reg 3 Reg 4 Reg 48 Reg SA Reg SB Reg 6 nces What is the product's CM ratio? CM ratio...
Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $40 per unit. Variable expenses are $20.00 per unit, and fixed expenses total $160,000 per year. Its operating results for last year were as follows: $ 1,120,000 560,000 560,000 160,000 Sales Variable expenses Contribution margin Fixed expenses Net operating income 400,000 Required: Answer each question independently based on the original data: 1. What is the product's CM ratio? 2. Use the CM ratio to determine the break-even point in...
Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $80 per unit. Variable expenses are $40.00 per unit, and fixed expenses total $180,000 per year. Its operating results for last year were as follows: Sales Variable expenses Contribution margin Fixed expenses Net operating income $ 2,000,000 1,000,000 1,000,000 180,000 $ 820,000 Required: Answer each question independently based on the original data: 1. What is the product's CM ratio? 2. Use the CM ratio to determine the break-even point...